Real Estate Lawyer: “Buying and Selling Real Estate Notes”

Kiriak Law

Real estate investors often buy and sell real estate lien notes, either singly or in a package, a transaction that is customarily effected by a “Sale & Assignment of Note(s) and Lien(s),” which is akin to a bill of sale for personal goods. We will refer to this document simply as an assignment. Our real estate lawyers (Kiriak Law) can assist you in these issues. The notion of buying or selling a note seems simple until you delve into it.

Is the assignment made “as is?” Are there representations and warranties made by either party and, if so, how extensive? Are there recourse provisions and, if so, what is the recourse mechanism? Will an indemnity provision be included? Let us explore the required dictates.

What are the issues the assignee should be looking for? Look at the basics. As is the case with any contract, there must be consideration extended (i.e., money loaned) for a note to be valid. (Hughes v. Belman, 239 S.W.2d 717, 720). The note should identify the parties, recite an unconditional promise to pay a sum certain (the numerical portion must exactly match the written portion), be signed by the debtor and dated, and provide clear terms of repayment (upon demand or at a fixed time). It should not (obviously) contain any provisions that are illegal, such as requiring the payment of usurious interest. The note should be currently performing (no monetary or non-monetary defaults), with no lawsuit or bankruptcy filing anticipated from the debtor, whose payment history should also be examined. If the lien(s) securing the note are against a homestead, both husband and wife must have signed the note and the deed of trust securing its payment. The deed of trust should be filed and otherwise properly do its job.

Notes are assets and their acquisition can be a part of an investor’s long-term buy-and-hold strategy. Like rents, a portfolio of mixed-age performing notes can produce a stream of income; however, unlike reality, there is no underlying equity to sell at the end of the rainbow. Value depletes over time, it does not increase, so a note portfolio requires continual management. As notes age and mature, new notes must be acquired in their stead if the income stream is to be maintained.


Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so.

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